Find a 'rightshore' to deliver outsourcing value

Reduced operating expenses may yield business innovation

Buzzwords like offshoring and nearshoring are common within the IT services sector, but outsourcer Capgemini believes it has found a sweetspot with its rightshoring initiative which can deliver the best of both approaches.

The term rightshore is used to describe collaboration between local knowledge of a business's needs and back office processes which are not location-dependant.

Capgemini Australia's CEO, Paul Thorley, said back in 2002 everyone wanted to go "ruralshore" which has the advantage of "cultural proximity", but he is struggling to see the scalability of that model.

"We have offices in Sydney, Melbourne and Adelaide, and links to offshore operations in India," Thorley said. "We don't see [ruralshoring] as a major reduction. Moving work from Sydney to Adelaide may be only 10 percent less."

Despite the offshoring hype-cycle now well and truly full-cycle, Thorley is quite bullish about future prospects, and sees India as "inevitable".

"We see offshoring as the right thing to do for various reasons," he said. "Can we guarantee the money saved will be spent on innovation? That will be up to the CIOs."

"We have had contracts with a utility in the US which wanted to use the savings for more innovative work [and] some of the smarter clients are dialling technology refresh into contracts."

Locally, Capgemini grew by 40 percent last year, with Thorley attributing the growth to its Indian operations.

The company has about 550 local staff and 160 "extended" staff in India. With a preference for application architecture, it does hire local developers, but that won't increase too much as it doesn't want to "fall into the trap of high local costs".

"We're dealing with all the major banks now, up from one seven years ago," Thorley said, adding both principal telcos are also clients.

"We haven't focused on SMEs, but we may as we introduce our mixed economy offering. We invested in Canberra in a big way, it's a multimillion dollar bet in terms of location."

This mixed economy model, according to Thorley, will result in enterprises having a flexible resource pool, or "extended IT resource" of 50 to 60 people in India with skills they define for a year and at the same time do capacity planning locally on areas of the business "not seen as offshorable".

Capgemini Consulting India vice president Arnab Dasgupta said nearshoring was lip service two years ago but is now becoming the norm as consumers like to keep the local "flavour" and at the same time get the benefits of the offshore industry at the back end.

"There were two phases in the offshore evolution," Dasgupta said. "The first was ripping cost out but below a certain price you start becoming inefficient [so] the pure offshore model is not sustainable. Phase two is around business value creation. That's where traditional offshore providers will face a challenge. Some are trying to create onshore knowledge [and] even the traditional guys have realised it's not a cost play."

Whatever is driving a company's decision to send IT and business process work to a service provider, both Thorley and Dasgupta agree all intellectual property should be retained by the customer.

"We are 100 percent services company and we don't own any [client] IP," Dasgupta said, adding when services companies start trying to sell products they lose focus on the core business.

"In the overall contract partners are asking us to help them with developing new products and processes. Some studies have been done and for every 80 cents you spend on offshoring the money ploughed back into economy is $1.20."